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May 7, 2013

China Exploding With New HNWs

High-net-worth ranks in China doubled in four years

Women in front of a stock board in Shanghai. (Photo: AP)

Affluence is touching more and more Chinese, according to a report released Tuesday in Beijing by Bain & Co. and China Merchants Bank.

The number of Chinese high-net-worth individuals, those with at least $1.6 million in investable assets, stood at some 700,000 at the end of 2012, more than twice as many as four years earlier, the report said. This year, that number will increase by 20%.

The report found that average individual investable assets per high-net-worth person were $4.7 million at the end of 2008, and were on track to grow to $5.2 million by the end of 2013.

At present, 20 provinces in China have high-net-worth populations exceeding 10,000, and five new ones have joined the elite group since 2010.

Heilongjiang benefits from natural resources and the reform and development of industrial bases. Chongqing gets a boost from the development of central and western regions and coastal businesses that have relocated to the west.

High-net-worth population increases in Shanxi, Shaanxi and Inner Mongolia resulted from growth in the coal and natural resources industries.

As the ranks of China’s wealthy grow, investment behaviors continue to evolve, researchers found. “Wealth preservation,” “quality of life” and “children’s education” topped the list of wealth management objectives in the new report.

“Wealth creation,” the number one wealth management objective in the 2009 survey, dropped to fourth place.

The report identified these trends:

Wealth inheritance planning is on the radar of approximately one-third of high-net-worth individuals and one-half of ultrahigh-net-worth individuals—those with at least $16.1 million in investable assets

More than half of ultra-affluent individuals have expressed interest in establishing “family trusts,” few of which are offered on the mainland

15% have already set up trusts or started to do so, most often through private banks located in Hong Kong

The number of wealthy Chinese seeking overseas asset allocation for risk diversification and investment opportunities has roughly doubled since 2011, with half of the ultra-affluent now invested overseas

Wealthy Chinese investors seek superior advice and guidance in selecting more sophisticated offerings, preferring banks with high degrees of professionalism and expertise in international markets as their service providers for oversea asset management.

“High-net-worth individuals in China have been very successful in creating wealth,” Jennifer Zeng, Bain partner in Beijing and co-author of the report, said in a statement.

“But as wealthy Chinese age, they now face a dilemma in how to preserve wealth and leave it to their families. This presents many opportunities for banks serving the private wealth market in China, if they can effectively respond to these emerging needs.”

The report said China’s domestic private banks face intensified competition. Maintaining and strengthening their competitive advantage demands that they assemble high quality service teams and expand product and service platforms through multiple channels.

Moreover, with domestic needs for overseas asset allocation on the rise, Chinese banks should leverage their deep understanding of and good relationships with high-net-worth individuals, and develop models that best suit their strategy to accelerate their overseas expansion.

“HNWIs’ demands in investment management have become more sophisticated,” Sameer Chishty, Bain partner in Hong Kong and global head of the firm’s wealth management and private banking practice,” said in the statement. “They have stronger needs in mid- and long- term wealth planning, and have rising demands in wealth preservation and inheritance.”